Columns on Ethics, Leadership and Life by Gael O’Brien

Category Archives: Conscious Capitalism

That was a central question John Bogle, founder of The Vanguard Group, posed several years ago about Wall Street. It is also an underlying question in Arbitrage, Nicholas Jarecki’s recently released film.

Richard Gere plays Richard Miller, a billionaire hedge fund manager whose greater cause is seeing himself as the orbit point of the universe. He is driven in equal measure by greed and power, wrapped in the self-conceived nobility of doing it all for his family.

When his very risky financial, business and personal decisions backfire in disastrous consequences that he continues to play out, his defiant responses lack remorse, self-reflection, or apology:

“What am I supposed to do?”….”Did you want me to let our investors go bankrupt?”….”I did what was necessary.”….”Everything I do is for us….”

In an interview, director Jarecki said he wanted Gere’s character to reflect an Aristotelian tragic hero: a good man who became corrupted, who read too many of his own press releases.

Wall Street doesn’t have the market corned on megalomania. We’ve witnessed it in politics and any profession when an individual believes he is entitled to write his or her own rules without accountability to consequences.

However public trust in banks and big business remains at an all-time low, not rebounding from the financial crisis. Gallup’s Confidence in Institutions poll this summer indicated that only 21 percent surveyed trust banks and big business a great deal/quite a lot, compared with 63 percent who said that about their trust in small businesses.

Movies like The Inside Job and Margin Call merely reflect what the public experienced, saw, heard or read about the financial meltdown that contributed to its losing trust.

The issue of how much is enough is directly tied to trust. It is a question we have yet to answer.

In Arbitrage, Miller’s wife asks the billionaire, “How much money do we need? Do you want to be the richest guy in the cemetery?” For Miller, there is no limit to the amount needed because it is spent faster than it is made. The end justifies the means in the endless pursuit to obtain more.

As an aside, Bogle might take heart from the Conscious Capitalism movement, which promotes profit and creating “multiple kinds of wealth and well being” that have a positive impact on society and inspire public trust.

Bogle’s book grew out of a 2007 commencement speech he delivered to Georgetown University MBA graduates. He asked them to consider “the role of ‘enough’ in business.” He admonished the graduates: “It is said on Wall Street, correctly, that ‘money has no conscience,’ but don’t allow that truism to let you ignore your own conscience nor to alter your own conduct and character.”

Arbitrage’s Miller can’t be trusted — seduced by his own sense of omnipotence, blind to his impact on others, he is driven by the belief there is never enough.

How many crises would be averted – root causes eliminated or problems contained – if companies operated with a lens that included their impact on society as well as shareholder value?

Lessons learned from the crises of BP,Toyota, Massey Energy, Goldman Sachs, and the 2008 global economic meltdown — among many others — have demonstrated the human break down when companies focus on profits, losing sight of the impact of what they do (or fail to do) on people, communities, and society.

In seven states (Vermont, Maryland, New Jersey, Virginia, Hawaii, New York, and California) over nearly two years, companies who have registered to become benefit corporations have broadened their lens beyond profit maximization. They can now structure their business to include social and environmental concerns in their mission. The legal structure of benefit corporations provides a shield against shareholder lawsuits that say such activities dilute stock value. Several other states are considering legislation to adopt this corporate structure.

Patagonia founder Yvon Chouinardwas the first to register his company as a benefit corporation in California when its law went into effect January 2012. He indicated Patagonia was trying to build for the next 100 years: “Benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership,” he said, “by institutionalizing the values, culture, processes, and high standards put in place by founding entrepreneurs.”

Mission-driven companies like Patagonia are profitable and far less likely to show up on the damaged-reputation list of those felled by crises. For those filing as benefit corporations, the requirement that companies’ corporate purpose create a material positive impact on society and the environment further reduces the risk of crisis. It broadens the criteria that go into making good and sustainable business decisions.

An additional risk mitigation factor involves requiring benefit corporations to redefine fiduciary responsibility to consider the interests of workers, community and the environment. This will necessitate discussing in board and executive meetings the impact of proposed actions beyond the silo of a company’s own interest. Accountability and transparency are reinforced by benefit corporations being required to use an independent, third-party standard in reporting social and environmental performance.

Critics of benefit corporations argue this is just a legal fad. The argument goes that corporate directors already have the ability to justify actions like saving the whales or other causes they feel are in a company’s best interests. They point out that under current law, companies can demonstrate socially responsible behavior.

However, there is a difference between the option to demonstrate socially responsible behavior (perhaps under the auspices of a department like CSR) and having it permeate the DNA of your organization. By building it into your corporate purpose, your business strategy, the impact you want your company to have on society and the environment, it isn’t ancillary; it becomes how business is approached.

The benefit corporation is an example of a new way of doing business where the shareholder investor and the stakeholder of society both get what they need without either being jeopardized.

The existing business paradigm isn’t working, said Chouinard in January after he registered Patagonia as a benefit corporation. “This is the future.”

In the aftermath’s of 2011’s Occupy protests, benefit corporations invite the possibility that comes with thinking differently.

When Social Responsibility is really a part of the character of the company — rather than one of the many things a company does that stakeholders expect — it becomes an organic part of the story of who the company is, what it stands for.

Social Responsibility is second nature to companies that are aligned with the principles of Conscious Capitalism. For the Container Store, Stonyfield and TOMS, among many others, having a successful business is linked with a mission to impact society in a positive way. For these companies social responsibility is in their identity and business strategy.

A recent book, Start Something That Matters, by Blake Mycoskie, tells the story of TOMS, but the larger point is what happens to leadership when the mission is allowed to transcend the leader.

TOMS name evolved from the idea of Shoes for a Better Tomorrow and Tomorrow’s Shoes. For every pair sold, TOMS donates a new pair to poor children. Since its founding five years ago, TOMS has donated one million pairs of shoes to needy children.

While TOMS story is significant, Mycoskie’s focus invites readers to find and develop their own story. He relies on entrepreneurial advice to start small, taking one step at a time. His table of contents includes wisdom like: “face your fears,” “be resourceful without resources,” “keep it simple,” “build trust,” “giving is good business” and “the final step.”

“When you have a memorable story about who you are and what your mission is,” he points out, “your success no longer depends on how experienced you are or how many degrees you have or who you know. A good story transcends boundaries, breaks barriers, and opens doors.” He adds that this is not only a key to starting a business, but also “to clarifying your own personal identity and choices.”

In the world of social media in which we live, a story evokes emotion and forges a connection, he says; people who buy TOMS “talk about the support of our mission rather than simply telling people they bought a nice shoe from some random shoe company.”

Mycoskie’s views on leadership changed. He said he had wanted to become a rock-star business leader, a CEO cult figure of his generation, when he started out in business more than ten years ago in his early twenties. However, the more he learned, the more he aspired to servant leadership. He wanted to create a culture where everyone in the organization feels attached to TOMS, can be a spokesman when appropriate, and is helped to help others perform to their fullest abilities.

At a time when trust is very low – in business and politics – with ongoing examples of leaders not owning mistakes, Mycoskie believes in admitting and correcting them. While there is tolerance for making mistakes, trust is such an important value at TOMS that there is zero tolerance for breaking trust internally.

TOMS and other conscious capitalism companies help drive awareness that trust is gained through a focus on respecting customers and employees with both products and work environments that value the person.

Mycoskie says he has shifted the goal for his business. While relieving children’s suffering by giving shoes to those without them is still a powerful driver, engaging more people in identifying and creating solutions to the world’s problems is his goal.

It is a goal that encourages and influences people to start something that matters.

A timeless message for any of us at any age but one that in 2011 seems especially important; it opens up further possibility for what social responsibility can mean in an ever uncertain world.

When I heard Ronald Shaich, Executive Chairman of Panera Bread, say “bring your humanity to work” recently, it suggested a way of operating that could make corporate crises a thing of the past.

That comment has rich implications for ethical leadership and building corporate culture so that an organization flourishes. It also speaks to the impact business can have on society, which is what Shaich meant. The impact raises questions about the deeper definition possible for the term “corporate responsibility”.

Bill Gates has raised the bar on how business can leverage their competencies and use financial success to address social problems globally. He and others have recognized that governments are not going to solve the world’s problems.

Shaich indicated that business needed to step up beyond writing checks and donating goods. In Panera’s case, donating about $150 million a year in food wasn’t making a difference in impacting the one in four children in the United States struggling with hunger; an issue Panera cared the most about.

Listening to a news story about a small Colorado cafe that served the poor, he got an idea. Building off what Panera does best in over 1,450 communities in North America, the company did research and tested business models and locations. The goal was to develop a sustainable, pay-what-you-can community cafe concept and convince shareholders the idea made business sense. They called it Panera Cares.

Panera created the Panera Bread Foundation which launched three nonprofit cafes serving the full menu in communities that have both poor and affluent residents – suburbs of St. Louis and Detroit, as well as in Portland (Oregon). They created a model of shared responsibility where everyone is treated with dignity and those who can pay more do in order to cover the cost of others.

It was a risk Panera tried to mitigate by taking small steps, learning, and improving on the concept. When Panera opened the first community cafe in St. Louis in May 2010, Shaich worked with employees and volunteers the first two weeks to iron out any issues. The second community cafe launched six months later, and the third, this past January.

The results? Nearly 12,000 people are fed each week in the three cafes. Panera found that shared responsibility works. About 20 percent of customers leave more than the suggested donation, 20 percent leave less or nothing, and 60 percent pay the suggested amount. About 75 – 80 percent of the retail cost of the food is covered. There is a donation bin in place of a cash register.

Dealing with hunger isn’t just about food, it is also about jobs. In St. Louis, Panera has begun a job training, work/life skills program for at-risk youth and expects the program will roll out in the second cafe this summer. Panera isn’t over promising; it just keeps taking steps to leverage what they know how to do to impact hunger and at-risk youth.

At a TED conference last November, Shaich invited attendees to imagine a world where a company like Wal-Mart handled food distribution for food banks, or banks like J.P. Morgan and Bank of America were as worried and involved in the people getting foreclosed, and how to avoid foreclosure, as they are in doing the foreclosures. Or imagine, he added, a world in which the outstanding management talent at companies like Ford and GE etc. were applied to the enormous responsibilities NGOs face all over the world.

The reality is that the definition of a company’s stakeholders has changed; they are now all of society. The impact of a constantly shifting global economy, and the inter-relatedness of problems in one part of the world impacting the rest, take away the firewalls leaving us on each others’ doorsteps.

Panera’s entrepreneurial approach — working a plan that makes business sense, taking small steps, creating shared responsibility, and providing a sustainable outcome — might be a model for others who are looking at corporate responsibility more narrowly. It is about taking what a company can do well and transferring it to a situation that meets a critical social need. The possibilities are endless.

Imagine a world where we bring our humanity to work. How much easier it would be for organizations to earn and keep trust and reputation.

A mother, who had a few young children with her, was trying unsuccessfully to placate a crying child at the register of a Trader Joe’sfood store while a clerk tallied her purchases. When she reached for her wallet to pay, it wasn’t in her purse. The clerk – or more correctly “crew member” as the company calls its employees – immediately told her he would pay for the groceries and she could pay him back.

He didn’t know her. His offer wasn’t part of Trader Joe’s policy or practice; he just quietly did it, he said later, because he felt it was the right thing to do in that circumstance. The mother returned with her wallet to pay him back, and is quick to pass the word now that Trader Joe’s is a wonderful store.

The story illustrates that if a company, like Trader Joe’s, puts a high priority on creating outstanding customer experience, with the expectation that crew members will “look through customer’s eyes;” and at the same time, the company also gives crew members a voice, listens to their opinions and looks out for their advancement, that company can reap the benefits of both engaged people who work for them and loyal people who buy from them. This is a pretty good definition of win-win.

Trader Joe’s, a specialty grocery, sells preservative-free, organic and regular foods it buys in bulk so it can offer lower prices. By the end of 2010 it will have almost 340 stores in 27 states, according to Doug Rauch, its former president. As Trader Joe’s is privately held, Rauch said he wouldn’t give details about the chain’s profitability except to say it is very successful, enjoys double-digit growth, and is more profitable than Whole Foods. Rauch calls Trader Joe’s a “purpose-driven business”

Rauch’s remarks came recently at a conference on conscious capitalism. Companies that practice conscious capitalism aspire to more than just turning profits; Trader Joe’s, Whole Foods, the Container Store and Stonyfield Farms are examplesof successful companies that have a higher purpose. Their definition of stakeholder reaches beyond those who benefit directly from the company, to larger social and environmental purposes affecting society.

Profit is essential. But we’ve seen what has happened when good intentions aren’t acted on and profit is the driver that overrides safety issues, customer interests, and the welfare and ecological environment of a region. Crisis ensues. Toyota, Goldman Sachs, and BP have become capitalism’s fallen angels. Going forward, putting ethical behavior at the center of how they do business might be something to consider when – as we’ve seen all too often lately – all else fails.